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Has Your Portfolio Recovered?
Old 05-14-2011, 08:39 PM   #1
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Has Your Portfolio Recovered?

Scott Burn's article today by above title shows that most portfolios mimicking balanced funds and withdrawing an inflation-adjusted 4% during the past 51 months would be show an average lost of 15% of the beginning value. My guess is that most people do not strictly adhere to the 4% adjusted for inflation rule. I'm curious how people who are living solely off there portfolios handle the great uncertainty of investment returns. It seems to me that one really needs to take no more than 3% out per year if he/she has a long retirement horizon. Alternatively, if one believes expenses decreases with age one could take out 6 or 7% of initial portfolio value and not increase this with inflation.
Has Your Portfolio Recovered Yet? - Registered Investment Advisor
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Old 05-15-2011, 08:41 AM   #2
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Like many of Scott's article that caused me to pull out my spreadsheets and do some calculations. Unlike Scott's my figures are as off today, not 3/31.

Looking at strictly my non-retirement assets and excluding my home, I am up 1% since Jan 2007. I am have been withdrawing of between 3-4.5% (not adjusting for inflation) of these assets since purchasing my ex girlfriends 1/2 of the house back in 2006. I should point out that Scott's calculation didn't adjust for inflation 40K withdrawal in 2007 is $43,881 in 2011. More importantly than the modest increase in assets, is that during this time I paid off my mortgage of just under 200K. (Sadly the house value dropped by more than 200K according to Zillow..) Paying off the mortgage reduced my expenses considerably. My retirement accounts (which have had no withdrawals) are up 12% since the beginning of 2007, which puts my returns at the top of the balanced funds list.

I suspect that part of the reasons I've done pretty well (besides some luck) is that my AA has ranged between 75-85% (current) in equities. Of the equities the vast majority are invested in dividend paying stocks or MLPs, which the with notable exception of bank stocks fared better than the most equities, providing enough income for me to avoid having to sell during 2008-2009 although I did cut expenses modestly.

I guess the moral is to avoid balance funds, and don't follow the crowd and sell low and buy high.
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Old 05-15-2011, 11:19 AM   #3
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our 50/50 (equity/fixed income) portfolio has a cumulative return of 22.3% with no withdrawal since the end of 2006. The return would have been a lot lower (or close to zero) had we withdrawn 5% annually.
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Old 05-15-2011, 09:12 PM   #4
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My own high point was in Dec of 2007, and the low was March 9th 2009. I've had a couple of times when I have briefly been above the 2007 high. Am now just below this point.

However, since the high, I have spent over $300,000 in living expenses. If I was still working, or had a pension, or was drawing SS, all of which I am not, I wouldn't have spent all that money, and would be way ahead of my 2007 high. I run about 55% equities.
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Old 05-15-2011, 10:13 PM   #5
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Well, I retired 3 years and 50 weeks ago. Our portfolio is up 50 % from retirement. It's also down a 7 figure amount from its 2008 high.

I think this might be due to an AA that most here wouldn't approve of.
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Old 05-16-2011, 12:03 AM   #6
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Well, I retired 3 years and 50 weeks ago. Our portfolio is up 50 % from retirement. It's also down a 7 figure amount from its 2008 high.

I think this might be due to an AA that most here wouldn't approve of.
That's impressive!
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Old 05-16-2011, 12:08 AM   #7
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No, scary.
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Old 05-16-2011, 12:32 AM   #8
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I'm sorry to note that the featured funds don't give any posters the chance to say "Pssssst... Wellesley"...
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Old 05-16-2011, 12:45 AM   #9
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Or a combination of Vanguard funds with an MER less than 10 BP (my guess). I'm impressed that the example they gave was a fund with an MER of .71. Here in the Frozen North balanced funds go from 2 - 3%. Even ETFs are more expensive (my biggest is XIU-TO, MER = 0.17%) is more than double VTI.
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Old 05-16-2011, 01:41 AM   #10
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I have been living off my 100% individual stock portfolio since my Oct 2006 retirement, with dividends funding my withdrawals.

From 2006 to 2011Q1 the market value of my stocks is about the same, so gains have about canceled out withdrawals. However, stock dividends and earnings are up almost 50% in that stretch, so I am feeling pretty good about things.
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Old 05-16-2011, 02:07 AM   #11
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You go!!
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Old 05-16-2011, 05:04 AM   #12
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Well above the high point in 2008, but our WR is low; under 2.5%.
Portfolio is 60/30/10 (equities/fixed income/cash and other).
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Old 05-16-2011, 05:21 AM   #13
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May I ask you what this AA is ? My AA is 100% CDs, municipal bonds, CD equivalent or money market.
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Originally Posted by kumquat View Post

I think this might be due to an AA that most here wouldn't approve of.
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Old 05-16-2011, 06:56 AM   #14
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I'm sorry to note that the featured funds don't give any posters the chance to say "Pssssst... Wellesley"...
I'm not ER'ed yet, but my IRA is well above it's 2007 peak. No activity other than some rebalancing. The AA is 31% Wellesley, 32% Total Bond Market, 19% International Equity Index, 18% Total Stock Market. So boring that it might just send me to sleep, but that's the way I like it.
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Old 05-16-2011, 09:04 AM   #15
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up ~20% from high in 2007, so that's about 5% per year, no FA, no day trading, just assortment of mutual funds. Like nun, boring...
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Old 05-16-2011, 09:28 AM   #16
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My guess is that most people do not strictly adhere to the 4% adjusted for inflation rule.
True. The "4% rule" is bogus, especially for those that retire before a "traditional age" ...

Let the comments follow ...

(I'll follow up with my retort, after we get to see what others think...)
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Old 05-16-2011, 01:54 PM   #17
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My portfolio is worth about 89% more than it was on 12/31/06, but a good deal of that is because I've kept investing. I did run a few scenarios in Excel though.

If I had $1M on 12/31/06, and didn't touch it at all (no investments or withdrawals), it would be worth about $1,225,000 today. FWIW, I gained 18% in 2007, lost 40.3% in 2008, gained 39% in 2009, another 18% in 2010, and about 6% so far this year.

Now, if I had withdrawn $40,000, at the beginning of each year, my portfolio would be worth around $972,000 right now. So I guess that's not too bad. A $30,000 per year withdrawal would have left me at around $1,035,000 right now.
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